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I recently had the pleasure to work with a very innovative dealer who implemented the concept of “dealer currency” in his dealership with great success. Dealer currency allows you to eliminate cash discounts on sales (in both Variable & Fixed Ops) by instead issuing a form of “dealer dollars,” redeemable anywhere in the dealership for the future purchase of parts, service, accessories, or towards a future vehicle purchase. This creates a true “win-win.” It satisfies the customer -- as they feel they have received the value of the discount. And the dealer -- because it ties the customer to the dealership for future purchases, without having to give away any profit up front in the deal.

For example, instead of discounting a vehicle sale as follows:

Selling Price

$20,000

$40,000

$60,000

Purchase Discount

$750

$1,500

$3,000

Adjusted Selling Price

$19,250

$38,500

$57,000

Dealer currency replaces those cash discounts with a dealer’s own

currency instead:

Selling Price

$20,000

$40,000

$60,000

Dealer Currency Issued

$750

$1,500

$3,000

Selling Price Remains at

$20,000

$40,000

$60,000

Dealer Currency Cost of Sale

$750

$1,500

$3,000

Commissionable Gross Based On

$19,250

$38,500

$57,000

With dealer currency, you retain the maximum selling price on a much larger percentage of the sale. Not only does your gross profit increase on each deal -- you’ve also now guaranteed yourself hundreds or, in some cases, thousands of dollars in future sales from customers that you have retained to do future business with your dealership.

This program goes beyond the sales floor. Dealer currency can be implemented in any department of a dealership where discounting is commonplace and/or you want to increase retention. For example, in most dealerships, service advisors give away money every day in the form of cash discounts because they have no other tools at their disposal. By issuing dealer currency, instead of a cash discount, gross service revenues increase and the odds are much more in the dealership’s favor that the customer will return to do business with the dealership in the foreseeable future.

The dealer dollars will accrue on your balance sheet just like a reserve account. Adding to them on a sale and reducing them on customer redemption. But you don’t have to worry about a negative balance sheet item getting too large because the dealer dollars are only good for the period of time you designate. They can then be written off as expired “dollars” and your gross on the deal just grew because the customer did not redeem the dollars. This raises your adjusted selling price, while reducing the internal actual cost to those dollars.

By using dealer currency, other expenses that dealers have traditionally absorbed 100% of can be reduced by upwards of 70 percent. Dealer currency can be used to resolve any policy issues with sales, service or F& I customers; to help launch and support service enrollment programs; to replace customer referral program cash; and even to supplement or replace promo dollars issued for local events (think golf tournaments) and charities. There are a lot of untapped possibilities here. This is a great alternative to the traditional points based loyalty programs.

What do you think about this? I’d really like to hear any comments or feedback you may have.

I really like the concept and if done correctly will increase your customer retention numbers.
Do they have good feedback from their customers? Are the customers willing to take a future IOU instead of the reduced price?
The few concerns I see really have to do with the internal accounting and making sure the program does not get abused.
Items such as:
- When the customer feels they are owed something due to an issue does the customer want "their" money to pay for it or does it go to policy.
- When a discount is used or when a customer wants to use some of their money are those services billed at a lesser rate? For instance, the customer wants to buy a brake job with their money. Let's say the repair is $200. So $200 will come out of the customers account but then when the repair order is finalized is at a lesser rate, wholesale price on parts and labor discounted? Per your discussion it doesn't seem like it is intended that way, just a question.
Really the WIN/WIN here is that the Dealer is listening to their customers and has a tool in place to address their needs. This will increase CSI and that will increase customer retention and that is a WIN/WIN. Although growing gross is an awesome byproduct, Customer retention is the long term winner.

Those are great questions and observations, Denim. I’ll try to respond briefly.
1) When an issue arises, it’s typically after a customer has paid for their goods & services. While it may not be the perfect solution in every situation, most customers are more than happy to receive dealer currency (future store credit) to make things right. They just want to feel their grievance has been heard and addressed. Dealer currency fits this need perfectly and keeps cash money from flowing out the door while building retention. Let’s face it, there’s a chance this customer may never return anyway and the ones who demand cash may not be the customers you want to keep around.
2) Dealer Currency does not reduce/discount your fixed ops reimbursement rates on parts & services. Dealer Currency really just becomes another payment method (e.g. cash, credit card, etc.). In this way, Fixed Ops gets full pop for the parts & services they provide and service advisors don’t have to worry about their average RO $ amount declining. Redemptions come out of a reserve set aside when the dealer currency was first issued – or it comes out of an expense account, such as advertising.
This dealer has had excellent feedback from their customers and their retention numbers – which currently stand 23% higher than the OEM average – help support that.
Feel free to contact me directly for more details.